TAX DISPUTES AND INVESTIGATIONS

CD: In your opinion, will the OECD’s Country-by-Country (CbC) reporting and Special Measures proposals cause an increase in multi-jurisdiction transfer pricing disputes?

Kennelly: Yes – first discussion, then debate, then dispute. The enhanced transparency of CbC reporting will, by design, increase the level of scrutiny of multinational companies with substantial business globally. The goal should be to use the inquiries leading from the CbC reporting as an opportunity for the taxing jurisdiction to gather information and the company to further inform the taxing jurisdiction of the business purpose of the transactions. My concern is that the discussion between multiple taxing authorities and companies could serve to inflame taxing authorities seeking explanation for profits created outside their jurisdiction and debates of the ‘economic fairness’ of multi-jurisdiction transactions. If the process is used as a means to advance competing interests instead of determining business purpose, it is simply a matter of time until those debates lead to taxing authorities seeking ways to challenge profits and transactions.

Oates: The Special Measures, if adopted as proposed, could lead to multiple taxing authorities reshaping the intercompany transactions in terms most favourable to each jurisdiction. The inconsistencies between the taxing authorities’ characterisations of the transactions and risks will likely lead to multi-jurisdictional disputes.